How does the Federal Solar Tax Credit work?

Solar adoption is skyrocketing, thanks to plummeting solar panel prices that enable homeowners to save money. For the first time, homeowners can control their electricity costs by going solar instead of being at the mercy of ever-rising utility rates. And through the end of 2019, going solar is extra appealing thanks to the federal residential solar Investment Tax Credit, which can be worth up to 30% of the total cost of your solar installation! The solar federal tax incentive is designed to support the adoption of solar energy in the United States. Under current law, the 30% tax incentive will remain in effect through December 31, 2019. After than it will drop down to 26% for 2020, 22% for 2021, and 10% thereafter.

(Click here to learn just how much these savings could mean to you with a free quote from Mosaic!)

A tax credit is a reduction in the amount of taxes you will owe. The typical homeowner that goes solar with Mosaic pays about $29,000 for a 7 kilowatt solar installation. So, in this example, the 30% federal ITC could be worth $8,700 off your taxes– quite a nice bonus! Claiming the credit is easy as A-B-C, if you know the eligibility requirements and how to claim it.

 

KEEP IN MIND: We’re solar people, not tax people so we don’t give tax advice. Anything you read on this page is merely one example and may not be appropriate for your unique financial situation. Not everyone will be eligible, so please consult a tax professional before filing your ITC.

 

Tax Credit Eligibility

In order to be eligible for the residential solar tax credit, you need to meet the following  requirements:

  • Your system must be installed by December 31, 2019.
  • You must own your home (renters are excluded, unfortunately).
  • You must own your solar panels.

This last point isn’t quite as obvious as it might seem, since many homeowners today actually lease their solar systems through third party companies. While leasing may make sense in some situations, it means that the leasing company gets to claim the tax credit instead of you! By contrast, homeowners that buy their panels outright or finance them with a loan (from Mosaic, for example) do get to claim the tax credit.

In addition to your eligibility for the credit, you need to consider the extent to which you can take advantage of it, since tax credits are only useful if you have equivalent, or greater, tax liabilities. It’s important to note that while the tax credit is not refundable, it can be carried forward one year, which means that you can use any remainder from this year as a credit towards next year’s taxes.

 

Example: Using our “Typical Mosaic” $29,000 solar system example, you could make full use of the $8,700 credit if you owed at least $8,700 in income taxes the same year your solar panel was installed. Alternatively, you can divide the $8,700 over two years – such as if you had an income tax bill of $4,500 that year and at least $4,200 the following year.

If your total tax liability over 2 years is less than $8,700, you may still use the credit so that you have no tax liability, but will not receive a refund for the difference between your tax liability and the total credit amount. So if your tax liability over 2 years is $8,000, you can use up to $8,000 from our above example to offset your tax liability but will not receive a refund for the remaining $700 of the credit.

To learn how to fill out the applicable IRS forms to claim your Solar Investment Tax Credit, click below to download the attached guide, Claiming the Solar Investment Tax Credit.

 

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